More than half of the public sector banks (16 of 26) couldn’t achieve the 40 per cent priority sector lending (PSL) target in the last financial year, the Reserve Bank of India (RBI) on Thursday said in its report on trend and progress of banking in the country.
The number stood at 15 and 11 in the case of the public sector banks that failed to achieve sub-targets for agriculture and weaker sections, respectively, the central bank said.
Banks need to achieve sub-targets of 18 per cent for agriculture and 10 per cent to weaker sections according to the existing PSL norms.
Six of the private banks also couldn’t achieve the overall PSL target, while 13 of them failed to meet the sub-target for agriculture, the banking regulator added.
Though banks failed to meet the PSL targets, gross non-performing assets (NPAs) from the priority sector were significantly higher for public sector banks, RBI noted.
Priority sector NPAs increased at a significantly higher rate than the growth rate of credit to the priority sector. However, the share of the priority sector in total NPAs declined compared with the previous year, the regulator said.
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Nearly half of the total NPAs were attributed to priority sectors. Priority sectors’ share in NPAs was about 47 per cent, compared with about 52 per cent last year.
Interestingly despite the subdued industrial performance, the share of micro and small enterprises in total NPAs of the banking sector came down. The sector had 14.9 per cent share in NPAs as on March 2012, compared with 17.6 per cent share in the previous year.
Within the priority sectors, especially within agriculture and micro and small enterprises, majority of loans are concentrated in relatively larger accounts.
Only 25 per cent of agriculture credit is going to small and marginal farmers, whereas 21 per cent of credit was distributed micro (manufacturing) enterprises with the investment up to Rs 5 lakh and Rs 2 lakh in case service enterprises against the prescribed target of 40 per cent. There is a need to change credit concentration within the priority sector in order to further facilitate the process of inclusive growth, RBI noted.